BCA Weekly Commentary 12/2/21: Bubble Unravels? Liquidations Occur
Updated: Dec 3, 2021
SUMMARY. Growth concerns mounted further as Fed Chairman Powell testified in front of Congress who's testimony hinted at the possibility of an even fast money printing tapper to come. This despite evidence that the new Covid-19 variant is less severe than many fear. Overall, we continue to expect growth to wane as inflation may erode consumer pricing power.
INVESTMENT IMPACT. Despite the mass liquidation in stocks across most sectors and sizes (although more so in small caps) we are holding model portfolio's steady. What's different in other market sell off phases is the indiscriminate selling tied to broad usage of passive investment products such as ETFs which has greater influence on money flows (vs over exposure to equities and retail speculation). When ETF's are liquidated they can create pressure on all securities owned regardless of each individual securities fundamentals. This is especially true for small capitalization stocks which have underperformed significantly since mid year. Thus, regardless of valuations high or low stocks get sold. In theory as fundamentals take hold and as time passes & markets stabilize these things tend to even out of what's being sold short term or bought longer term. Many of the names in our models are at 52 week lows and back at valuations not seen since 2019 while market indices are not partly explained by what we deem a large valuation disparity between small & large cap names particularly in technology and health care. Having said that it appears that large cap names are finally succumbing to selling pressure. In sum, short term price swings in liquidation phases of markets, at times, may not reflect long term fundamentals thus why we are holding steady in our model allocations.
Our model portfolio performance has been updated on our website as of 10/29/21.
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